Does Tax Need To Be Taxing For Multinational Companies?

There is no doubt that, all over the world, tax authorities are toughening up their position considerably. All Governments, no matter where they are located, currently need money as a result of the consequences of the financial crisis, and taxes are one popular way of creating revenue. This can be seen to some extent by attempts being made in England to tax more or to effectively get hold of money which might not be directly taxable in England. It can be seen in France in the new projects and it is also apparent in many other countries.

The taxation of multinationals has been heavily debated recently, with companies such as Amazon, Google and Starbucks bearing the brunt of the furore. Some claim that taking advantage of tax loopholes is immoral, whereas others say it is just good business.

"The main, and very complex, issue is the subject which has been the talking point in the cases which have hit the headlines, those of Amazon or Google. These cases have been talked about a lot, but the big difficulty behind it all is the way to fit extremely intangible businesses into a tax logic which is by definition of a geographical nature.

Each Government has its budget and therefore each Government claims its share of the profits, although these activities are totally intangible. The difficulty lies in the location of the profit, which is a complex subject, referred to as a permanent establishment. The question is to know where these multinationals have activities, as although it is difficult to understand where they are truly located, they always have a minimum establishment.

The tax authorities' interest is to claim the existence of a permanent establishment by saying that there is a base for taxation and claim this taxation. The difficulty lies, after that, in knowing how to determine these profits, because the figures are global, and therefore it is difficult to know what they are."

Taxand's Take

The taxation of multinationals is a big issue facing the marketplace today. There are difficulties in terms of the claims made by Governments with regard to the existence of a permanent establishment, and also in defining the amount of profit which should be attributed per country, and which is therefore taxable. One solution which has been discussed is the reconstruction of profit on the basis of sales or revenues, however no firm actions have, as of yet, been brought to the forefront.